November 30, 2023
RE: Corporate Transparency Act — Beneficial Ownership Information Reporting Requirement
Dear Client,
The Corporate Transparency Act (“CTA”) was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the beneficial ownership information (otherwise known as “BOI”) of certain entities from people who own or control a company.
The intent of the BOI reporting requirement is to help US law enforcement fight money laundering, the financing of terrorism and other illicit activities.
The CTA is not part of the tax code. Instead, it is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.
What entities are required to comply with the CTA’s BOI reporting requirement?
Entities organized both in the U.S. and outside the U.S. (including Puerto Rico) may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state.
Domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA (for example: Partnerships created by Public Deed in Puerto Rico).
Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state by filing a document with a secretary of state or any similar office.
Are there any exemptions from the filing requirements?
There are 23 categories of exemptions. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Please note these are not blanket exemptions and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.
In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:
- Employ more than 20 people in the U.S.
- Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
- Be physically present in the U.S.
Who is a beneficial owner?
Any individual who, directly or indirectly, either:
- Exercises “substantial control” over a reporting company, or
- Owns or controls at least 25 percent of the ownership interests of a reporting company
An individual has substantial control of a reporting company if they lead, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.
When must companies file?
There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.
- New entities (created/registered after 12/31/23) — must file within 30 days of registration.
- There is a proposed rulemaking allowing for new entities to be created in 2024 only to extend the 30-day timeframe to 90 days.
- Existing entities (created/registered before 1/1/24) — must file by 1/1/25.
- Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days of said changes.
What sort of information is required to be reported?
Companies must report the following information: full name of the reporting company, any trade name or doing business as (DBA) name, business address, state jurisdiction of formation, and an IRS taxpayer identification number (TIN).
Additionally, information on the beneficial owners of the entity and for newly created entities, the company applicants of the entity is required.
This information includes — name, birthdate, address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.
Understand your reporting requirement.
Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $500 per day and up to $10,000 with up to two years of jail time.
Planning ahead can help you comply and understand your filing obligations.
If you want us to help you with this filing, call us, as soon as possible, to schedule an appointment and prepare an engagement letter for this service.
Feel free to contact us if you have any questions.
Sincerely,
De Angel & Compañía, CPA, LLC